Zee Entertainment receives a notice from NCLAT regarding an IDBI Bank appeal

1 Sep 2023 , 10:58 AM

In response to a plea submitted by private sector lender IDBI Bank, the National Company Law Appellate Tribunal (NCLAT) sent Zee Entertainment Enterprises Ltd. (ZEEL) notice and instructed it to submit a response within two weeks. The NCLT judgment that rejected a request to begin insolvency proceedings against the media giant on May 19 has been contested by the private lender.

The IDBI Bank was given two weeks to file a response, and the matter was ordered to be listed for the next hearing on October 11 by an NCLAT panel that included Member Barun Mitra and Chairperson Justice Ashok Bhushan.

The bank’s request for insolvency against media giant Zed Entertainment was rejected by the Mumbai bench of the National Company Law Tribunal (NCLT) on May 19, 2023, noting that it was prohibited by Section 10A of the Insolvency & Bankruptcy Code (IBC).

The NCLT court stated in its ruling that Zee Entertainment Enterprises Ltd (ZEEL), which served as the corporate guarantor for the loan obtained by Siti Networks, the primary Borrower of IDBI Bank, has defaulted.

But the default was made within the window of time allowed by section 10A of the IBC.

Any financial or operational creditor is prohibited from filing a corporate insolvency resolution process (CIRP) application against a debtor for any default occurring on or after March 25, 2020, for a period of one year, according to Section 10A.

This was a unique clause the government included into the IBC to assist the businesses once economic activity had gradually returned following the lockout.

The NCLT stated that for defaults occurring on or after March 25, 2020, up until March 25, 2021, Section 10A completely and permanently prohibits the filing of any application under Sections 7, 9 and 10 of the Code.

Siti Networks has a debt service reserve account (DSRA) that must be kept current in accordance with the terms of a loan it has obtained for a working capital facility in the amount of Rs 150 crore.

On March 5, 2021, IDBI Bank invoked the ZEEL guarantee and was ordered to pay Rs. 61.97 crore with additional interest beginning on Feb. 18, 2021. It asserted that 149.60 crore rupees were in default.

ZEEL disputed this, claiming that its guarantee only allows for limited and restricted liability on the guarantor and that, in the event that the borrower at Siti Bank defaults, the guarantor cannot be held liable for the full amount.

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